Taxes 101: 3 Ways to Reduce Your Taxes

Long gone are the days of having a lower income, claiming head of household with two dependents, and receiving a big fat refund check in the mail. *sigh*

Since our family threw ourselves into another tax bracket two years ago, I just don’t find the joy in doing taxes anymore.

Now that I filed my 2009 tax refund form with Turbo Tax, payed too much in taxes because I don’t seem to think I know diddly squat about maximizing my income, and am receiving a minuscule tax refund check, it is my intentions to figure this stuff out.

And since I need to be informed of this matter, I have an inkling that it could do some good to share the information with you.

Let’s Begin

Adjusted Gross Income (AGI):

“is your income from all sources minus any adjustments to your income. The higher your total income, the higher your adjusted gross income. As you can guess, the more money you make, the more taxes you will pay. Conversely, the less money you make, the less taxes you will pay. The number one way to reduce taxes is to reduce your income.” – Taxes.About.com

Like a wanna be mechanic in the cartoons, can I just toss out the nuts and bolts in the statement, “the more money you make, the more taxes you will pay.”? I want to make more money, keep more money. I want to reduce my Taxable Income. (I think I am finally on to something here! ;))

How to Reduce Your Taxes
  1. Reduce Your Taxable Income. Best way to reduce your income is maximize your contributions to your 401(k), 403(b) or similar retirement account.

    Me: Increase 403(b) contributions

  2. Increase Your Tax Deductions. Itemize deductions to reduce your taxable income. Itemized deductions include tax preparation fees, car registration fees, charitable contributions, etc… You can read more about allowable Itemized Deductions at IRS.gov.

    Me: this is where I could have done better or kept better records. Least I know that gift I bought my boss last year while at conference – deductible (up to a $25).

    Also, I plan on keeping track of all the Itemized Deductions that I can potentially claim. Going to grab a shoe box and an Excel spreadsheet to track my receipts.

    Geithner Plan:

    How can the Geithner method help me to broaden my deductions? Or is that a thing of the past? Read about Geithner Financial Stability Plan at the U.S. Department of Treasury.

  3. Take Advantage of Tax Credits. Tax credits reduce your tax. Sweet!

    Earned Income Tax Credit, Child Tax Credit, Child and Dependent Care Expenses, Education Credits, Energy-Saving Tax Credits, etc…all good.

Conclusion

Well kids, that is lesson for today. I see that I have some minor changes to make like increasing my 403(b) contributions, tracking my deductions, and making sure to claim all necessary credits. I finally feel a sense of accomplishment in learning this basic lesson.

Did you learn anything today? Do you have something to add?

11 thoughts on “Taxes 101: 3 Ways to Reduce Your Taxes

  1. Little House

    I know how you feel. Taxes are no fun, especially when you don’t receive a big refund. However, there is a way to reduce your taxes: Write off’s! Meaning, you can start a business (this takes some money, of course) and you will then have some business write offs to include with your overall deductions. Does this really work? Well, it does if you need write offs to begin with. It also works if your overhead is low. Even a side businesses expenses can be written off using a schedule C. Hope this helps for your future tax time needs.

    Reply
    1. money funk

      You know, I didn’t touch base on that subject, did I? I have been told that I should start a business to help write off the section of my house I compute from (aka – home office). Maybe I should turn the blog into a business. Even if this blog makes me minimal money the corner of my home for writing could be used as a write off (as well as the office supplies obtained). Hmmm…. Thank you. Does help for future tax time. Sometimes my brain just needs to be shaken up. πŸ˜€

      Reply
  2. ParisGirl111

    Great summary of reducing your taxable income. I like your idea of the receipts and a shoe box. I have been trying to come up with a system for years. Maybe my system is too complex, maybe that’s why it doesn’t work for me! πŸ™‚ I am going to do my best to keep better records as well. Thanks for the tips.

    Reply
    1. money funk

      Thank you. I think the shoe box would be the easiest way. Of course, that means at the end of the year I need to sort it all out. But I think if I highlight the purchase and make note on the receipt, I should be good.

      Reply
  3. Financial Samurai

    C – Have you incorporated yourself so you can write off your internet expenses, and laptop perhaps? I think it can be done! I’m looking to incorporate myself for these purposes, but have not done so yet.

    Reply
    1. money funk

      I have not. But am considering treating it like a business for those write offs. πŸ˜‰ Do I get to write off my love seat, too (where I blog write)? LOL.

      Reply
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